Investment compensation limit could rise to £85,000
The Financial Services Compensation Scheme (FSCS) is a free compensation body for consumers who are owed money from a UK authorised firm that can’t meet its liabilities.
It covers savings accounts, stocks and shares, unit trusts, personal pension plans and long-term investments such as mortgage endowments in the case where a loss arises from bad investment advice, poor investment management or misrepresentation or when a firm goes bust.
The compensation limit is currently set at £85,000 for cash deposits, but just £50,000 for all other forms of compensation. A new consultation paper published by the regulator, the Financial Conduct Authority (FCA) reveals it’s considering increasing the FSCS limit for investment provision and intermediation, home finance intermediation and debt management claims to £85,000.
It said pensions freedoms had seen more people leave their pension funds invested in retirement via drawdown products, rather than buying insurance-based annuities. However, it became apparent that a pensions-specific proposal would not work. The consultation document read: “The main issue is defining at what point a pension-related investment becomes indistinguishable from a ‘traditional’, non-pension investment.
“Following the initial investment of identifiable pension resources, over time the investment may change, be reinvested, added to, or partially withdrawn and those funds invested elsewhere. In these circumstances, it is difficult to see why a consumer, having entered the investments market, should benefit from greater protection from losses than any other investor.”
It continued: “We believe that an increase in the limit for all investment business from £50,000 to £85,000 is reasonable.
“To maintain consistency and reduce consumer and firm confusion around the limits, we also propose to increase the compensation limit for Home Finance intermediation claims and debt management claims from £50,000 to £85,000. Increasing the limit for the new debt management claims class is unlikely to increase costs for firms given the likely size of claims in this area.
“Harmonising all of the cash limits with the current FSCS limit for deposits should help to reduce consumer confusion.”
The consultation is open until 30 January.
Related: See YourMoney.com’s Are my investments protected and will I get compensation if anything goes wrong?